Blackstone Raises Offer For Dynegy

By MICHAEL J. DE LA MERCED

Published: November 17, 2010

The Blackstone Group raised its offer for Dynegy on Tuesday afternoon, the eve of a scheduled vote on the proposed $4.7 billion buyout, which has encountered stiff opposition from two of the energy company's biggest shareholders.

But the two shareholders - Carl C. Icahn and Seneca Capital - said that they were unimpressed with the improved bid.

Blackstone is now offering $5 a share, or $603 million, up 11 percent from its original offer of $4.50 a share, or $543 million. Including the assumption of debt, the buyout is still valued at $4.7 billion.

On Monday, the private equity firm reaffirmed its offer of $4.50. But after consulting with several Dynegy shareholders, Blackstone decided to raise its bid, said a person with direct knowledge of the matter but who was not authorized to speak publicly about the discussion. The firm did not hold talks with either Seneca or Mr. Icahn, this person said.

Seneca said in a statement on Tuesday that Blackstone's revised offer was ''still the wrong price at the wrong time for the wrong reasons.''

Mr. Icahn said that the offer continued to undervalue Dynegy. ''I plan to vote against this deal and go back to the drawing board at Dynegy,'' he said in a statement, adding that he intended to push for a new sales process.

Shares of Dynegy, which have consistently traded above Blackstone's original offer since the leveraged buyout proposal was announced in August, jumped more than 7 percent in afternoon trading, to $4.97.

Blackstone and Dynegy have argued that the deal is necessary to keep the company afloat. Dynegy is expected to become cash flow negative next year, in part because of low natural gas prices, and it bears a heavy amount of debt. If shareholders do not approve of the deal, the company has hinted that it may have to file for bankruptcy.

Seneca and Mr. Icahn have argued that the original offer, along with a concurrent deal to sell four power plants to NRG Energy for $1.36 billion, undervalued Dynegy and its assets.

Over the last week, Seneca has proposed adding at least two directors to the company's board as a sign of dissatisfaction with the deal, and Mr. Icahn has offered to lend $2 billion to Dynegy if shareholders reject the offer.

Together, Seneca and Mr. Icahn control more than 20 percent of Dynegy's shares.

Blackstone and Dynegy have argued that Seneca's valuations are too optimistic, and that the firm has a spotty track record as an activist investor. Dynegy has also dismissed Mr. Icahn's loan offer, saying that additional debt is the last thing a financially overburdened company needs.

Before Blackstone's new offer was announced, people close to the deal said they expected the vote to be close.

Institutional Shareholder Services, a leading proxy adviser, has endorsed the Blackstone deal, and said that Dynegy's shares could fall to $2.66 if the offer is rejected. Two smaller proxy advisers, Glass Lewis & Company and Proxy Governance, have urged shareholders to reject it.

This is a more complete version of the story than the one that appeared in print.